The bottom line is employers have been stealing millions of dollars of overtime pay, while employees are being misclassified as “independent contractors.” Let’s take a look at independent contractors and how it matches up with the FLSA.
- Have you made a significant investment in a project?
- Do you actively market your skills and qualifications to potential clients?
- Do you control what you do, how you do it, and how you work?
- Would someone outside of your work environment think you were running your own business?
If not, you’re probably entitled to overtime pay.
Independent contractors are often left in the gray area of employee misclassification. Both large and small companies have participated in labeling employees as independent contractors when really, they were an employee.
In particular, the American economy is now making room for “shared economy” companies such as Uber, Lyft, Caviar, and the like. This has made defining what an independent contractor does more important than ever.
Employers who label their employees the incorrect way are able to get rich off of lower taxes. This means the true employee suffers by losing out on minimum wage and overtime protections guaranteed by the FLSA.
Are you an Independent Contractor?
More than likely, the answer is no. But there are some exceptions. Read more below about how the Department of Labor and FLSA define independent contractor.
The Administrator’s Interpretation No. 2015-1 expanded the definition of “employee” while restricted the definition of independent contractor. Those who work will probably be classified as employees more often than not. This means a guarantee of fair wages and overtime pay.
Independent contractors still exist, but the definition has narrowed. As an employee, you are paid at least $7.25 per hour and time-and-a-half for hours worked over 40.
The basic difference between independent contractor and employee comes down to real economic independence. Do you depend on your employer and their business? Or are you in business for yourself, self-employed?
FLSA definition of employment
Prior to 1947, labeling someone an independent contractor was more or less a matter of control. Employers would tell employees when, where, and what to do. Therefore, their activities were “controlled” by the employer.
Those relationships that didn’t fit that mold were a matter of business between clients and independent contractors. However, during the drafting of the FLSA, an employee was someone that an employer “suffered or permitted to work” for them.
This term can be quite confusing. To suffer or permit means that if an employer allows or requires employees to work, they are considered employed and the time spent working on a job is probably hours worked.
Much of interpreting the legal system is defining words. The word “allow” in this sense, means crucial. Prior to the word “control” in the FLSA language, an employer didn’t have to tell someone what to do, or how to do it, in order to be considered an employee.
It is an employers responsibility to make sure you’re not working overtime if they don’t want you to. Yet, “suffer or permit to work” also applies to the Department of Labor’s new instructions on employee definitions.
The definition of employee was meant to be as broad as possible to cover more people under the FLSA’s protections. This definition helps the employer determine whether you are economically dependent on them (meaning, employee) or not (independent contractor).
The “economic realities” test
Economic realities is what the FLSA is able to determine your status by. Based on the job title alone, you are unable to tell whether someone is an employee or not. Only the reality of the work they perform does.
The Department of Labor outlined in a six-part test how to determine whether you are economically dependent upon an employer, or in the case of being in business with yourself, a true independent contractor.
“..a true independent contractor’s work […] is unlikely to be integral to the employer’s business.”
- Is your work integral to an employers business?
The more an employer is dependent on your labor, the more you, yourself, are economically dependent upon them. According to the Department of Labor, “a true independent contractor’s work […] is unlikely to be integral to the employer’s business.”For example:A construction company specializes in framing homes. Carpenters, obviously, are integral to putting up those frames, and thus integral to the company’s business. It’s likely that any carpenters working on a project for that company should be classified as employees.But say the same construction company contracts with a software developer and asks her to design a program that can help track lumber orders and worker scheduling. Is she an employee? Probably not. While tracking orders and scheduling more efficiently will certainly improve the company’s operations, it’s not integral to the business, which remains framing houses.A call center can call its individual call service representatives “integral” to the business because the company itself is in the business of making phone calls. This makes it possible for employees to be both integral but still interchangeable. - Do managerial skills affect “opportunity for profit or loss”?
As an independent contractor, economically independent from a business, is your decisions affect whether you lose or make money. Yet this standard can be used when it comes to employees too. For example, those who choose to pick up more hours at work, therefore increasing their income, is still considered an employee. The FLSA prefers to focus on the “managerial skill” aspect, as well as true losses.Managerial skills involve duties like hiring additional employees to help on a job, purchasing equipment or advertising services. True independent contractors run their own business and negotiate all aspects of it, including negotiating contracts and looking for additional clients.How well you perform those duties can have a direct impact on the business, and whether it makes a profit or will suffer a loss.
A loss of investment can affect time, capital, but does not affect a loss in wages. An employee can perform poor work and have their hours cut, but they are still considered an employee.
3. How does your investment compare to an employer’s investment?
The real question is, are you investing as much (or nearly as much) in the project as the person who hired you? Have you invested much in your own opportunities for a profit or loss? If you answer yes to these questions, you may be considered an independent contractor.
4. Is a special skill and initiative required for your line of work?
This question revolves around business skills rather than technical ones. Though many carpenters, electricians, or painters are typically classified as independent contractors, they may not be the ones exercising independent judgment and initiative on a job.
Just because you provide skilled labor to an employer doesn’t automatically make you an independent contractor.
For example, you have two highly-skilled and versatile carpenters. One may provide services to a construction company but his skilled aren’t necessarily that of an independent nature. While on the job site, they make decisions about their specific task, but doesn’t make decisions about ordering materials, lining up subsequent projects, and their employer sets their schedule. This person is more than likely an employee.
However, the second carpenter may create custom cabinets and work with local construction companies. Their skills come into play when it comes to prioritizing orders, purchasing materials, and marketing their skills to perspective clients. More than likely, this person is an independent contractor.
5. Do you have a “permanent or indefinite” relationship to an employer?
Those who stay on with their employer until they are laid off, quit, or fired are likely employees. Since independent contractors market their skills and services to multiple clients, they often set end-goals for completing a project.
There are some situations where a lack of permanence is built into the industry itself. Agricultural work is an example of this. That’s because ag businesses rely on seasonal workers, who often migrate to where the work is. This doesn’t make them an independent contractor because the movement itself is the nature of the farm labor business.
If there is a lack of permanence as an independent contractor, that is due to your own business-making decisions.
6. The nature and degree of an employer’s control
The word “control” wasn’t necessarily tossed out in the Department of Labor’s guidelines for the economic realties test.
If you control the meaningful aspects of your work, or have control over how much you do and how you do it to the point someone would think you are in business for yourself, you are probably an independent contractor.
Yet this doesn’t have much to do with when or where you work. In a contemporary economy where many people are working from home or setting their own hours, many of them are still considered employees.
The Department of Labor guidelines provide an example of the difference:
For example, there are two nurses that provide skilled care in nursing homes. Both of them are registered with the Nurse Registry that can connect them to clients.
One nurse had to be interviewed and complete training before being matched with a nursing home. They are sent a list of potential clients each week, but must notify the company before calling any of the clients. They report to the Registry when they are hired and must stay within a predetermined wage range. This nurse is probably an employee.
The other nurse, however, receives a list of potential clients and can choose which ones to work for. They set their own wage and schedule their hours with the nursing home, independent of the Registry. They are likely an independent contractor.
In conclusion…
These six economic realties tests should be used as a guide to help determine your employment or independent contractor test. None of the questions outweigh the others, and are all relevant independent of one another.
Just remember, the FLSA is there to protect you. Most employees are guaranteed a minimum wage of at least $7.25 per hour, overtime pay, and one-and-a-half their regular rate of pay for hours worked over 40 in a workweek.
Questions About an Independent Contractor Misclassification Lawsuit? Contact a Johnson//Becker Lawyer for a Free Case Review.
If you feel that you have been misclassified as an Independent Contractor or that your “employer” is violating their requirement to pay you what you deserve, you should contact us for a free, no obligation case evaluation. We are actively filing new independent contractor misclassification lawsuits across the country and you may be entitled to financial compensation for the wages and benefits you deserve.
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